The Best Place To Invest In Real Estate For 2022 And Beyond

With all that's going on with COVID-19, the best place to invest in real estate is in the heartland of America. In other words, the Red states. We are going to see a massive demographic shift towards lower cost areas of the country that are also less dense. People are more readily able to work from home thanks to the pandemic and technology.

I’ve personally started shifting some of my real estate investments from expensive coastal cities to the heartland of America to the tune of over $800,000 since 2016. I did so through real estate crowdfunding platforms like Fundrise and CrowdStreet.

Best Place To Invest In Real Estate For 2022 And Beyond

I live in San Francisco, and own properties in California and Hawaii. California and Hawaii are expensive. At the same time, they are beautiful states to live in.

The new tax policy, which limits the State and Local Tax (SALT) deduction cap to $10,000 and the mortgage interest deduction cap to $750,000, will hurt expensive coastal city real estate at the margin. This will squeeze high-tax states like California, New York, New Jersey, Hawaii, and Connecticut the most.

The best place to invest in real estate for 2022 and beyond are the Southern and Midwestern states. Valuations are much lower and net rental yields are much higher. Further, here are other reasons why these places should outperform:

  • There will be a net migration out of Blue states into Red states as more people realize it’s a great deal living in Texas if you can get 3X as much for 1/3rd the price.
  • As our country gets older, more retirees will move out of Blue states to stretch their retirement dollar.
  • The remote work trend will continue due to technology and a tight labor market.
  • Income growth should be higher in Red states due to demographic shifts.
  • The rise of real estate crowdsourcing platforms increases the supply of capital, thereby increasing the demand and prices of previously hard to tap investments in Red states.

Diversifying Out Of Expensive Coastal States

I still own my primary residence and two rental properties in California, but I recently made the decision to sell my $60,000 net income rental home in San Francisco for $2,740,000 in 2017. By the way, since I sold the house in January, the property taxes the new owners are paying have gone up to $33,880!

I still believe SF real estate will do well in the long run, given there are so many major businesses that pay huge salaries out here. But I’ve been able diversify my investment from one very expensive coastal city property into 17 different properties in the heartland through real estate crowdfunding.

Some people have suggested REITs, but REITs are more of a macro real estate play where they tend to underperform in a rising interest rate environment. I want to invest more specifically in properties in strong job growth markets with strong operators who will increase rental occupancy or efficiently upgrade the properties for maximum selling prices.

Flying around the heartland to kick some drywall is an inefficient use of my time. Instead, I’d rather efficiently invest with a local experienced operator that has been properly vetted by a real estate platform. My goal is to seek a 8% – 15% annual return. San Francisco rental yields (cap rates) are only about 2.5% – 3%.

Beware Of The Real Estate Cycle

I believe the housing market will stay strong for years to come. Interest rates are low, a new government under President Biden has promised to pump out a lot of stimulus, and people are spending money again post pandemic. Therefore, overall, I believe investing the housing market is good for building wealth.

Where we are in the housing cycle - The Best Place To Invest In Real Estate For 2021 And Beyond

Post-pandemic, we are in the “Ripening Recovery” stage of the housing market. It's good to invest in big city real estate and the heartland because all real estate markets are likely to do well.

However, you can surgically invest in the heartland for outperformance through real estate crowdfunding. My money is on the Red states and these best cities. These two articles go deep into demographic trends, pricing, and taxes.

Easiest Way To Invest In Real Estate

The easiest way to invest in real estate in lower cost areas is with Fundrise. Fundrise is the best real estate crowdfunding platform for non-accredited. It will allow you to diversify your real estate investments for as little as $500 across the country. Fundrise is the creator of the eREIT product, a diversified private real estate fund for retail investors.

Fundrise weighted average returns by objective: income, balanced, growth

For individual commercial real estate opportunities, take a look at CrowdStreet. CrowdStreet primarily focuses in real estate investment opportunities in 18-hour cities, those cities with lower valuations and faster growth due to demographic shifts. If you have a lot of capital, you can build your own select real estate fund with CrowdStreet.

With work from home now commonplace, it is likely more people will escape expensive and densely populated areas like NYC to lower cost areas of the country. CrowdStreet is also free to sign up and explore.

In conclusion, I think investing in real estate will build you wealth over the years. The best place to invest in real estate in 2021 and beyond is in the heartland of America.

Personally, as a minority, I like living in a diversified city like San Francisco. But that doesn't mean I can't invest in the heartland and benefit from strong demographic trends. Live where you want, but invest where there is the most potential profits!

About the Author:

Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing. He spent the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. was started in 2009. The site is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times.

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